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D ock e t 98-7542

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. e du/thir dc ir c uit_2000/25Filed February 9, 2000

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 98-7542 and 98-7543

LESVILLE JAMES, as assignee of the rights of MERIDI AN ENGINEERING, INC. and COMPANION, INC., d/b/a
COMPANION ASSURANCE COMPANY,

Appellant in No. 98-7543

v.

ZURICH-AMERICAN INSURANCE COMPANY OF ILLINOIS,

Appellant in No. 98-7542

APPEAL FROM THE DISTRICT COURT OF THE VIRGIN ISLANDS,

DIVISION OF ST. CROIX: CHRISTIANSTED (D.C. Civil Action No. 95-cv-00117)(RLF) District Judge: Honorable Raymond L. Finch

Argued September 10, 1999

BEFORE: ROTH and WEIS, Circuit Judges, and SHADUR,* District Judge

Opinion Filed February 9, 2000

___________________________________________________ ______________ * Honorable Milton I. Shadur, Senior United States District Judge for the Northern District of Illinois, sitting by designati on.

Joel H. Holt, Esquire (ARGUED)
Law Offices of Joel H. Holt 2132 Company Street, Suite 2 Christiansted, St. Croix U.S. Virgin Islands, 00820

Attorney for Appellant Lesville James as assignee of the rights of Meridian Engineering, Inc. and Companion, Inc. d/b/a Companion Assurance Company.

Ignatius J. Melito, Esquire
(ARGUED) S. Dwight Stephens, EsquireWendy S. Kennedy, Esquire

Melito & Adolfsen P.C. 233 Broadway New York, New York 10279

Douglas L. Capdeville, Esquire Law Offices of Douglas L. Capdeville

P.O. Box 4191 2107 Company Street, Lot #4 Christiansted, St. Croix U.S. Virgin Islands, 00822

Attorneys for Appellant Zurich-American Insurance Company
of Illinois.

OPINION OF THE COURT

SHADUR, Senior District Judge:

We are asked to interpret what may at worst be labe led an ambiguous provision of an insurance policy, to determine whether the policy provided coverage for a third party, not the insured itself. Upon review we find that whatever might be said as to the literal meaning of the disputed provision, the practical construction give n to its terms by the actual parties to the policy--the insu rer and the insured--resolved any arguable ambiguity and ex cluded

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coverage for the third party. We therefore reverse the order of the District Court to the contrary.

Background

Zurich-American Insurance Company of Illinois ("Zur ich") appeals an adverse decision in an insurance coverag e declaratory judgment action instituted against it b y Lesville James ("James") as assignee of the rights of Meridi an Engineering Inc. ("Meridian") and Companion Assuran ce Company ("Companion"). This action arose out of a d ispute between Zurich and Companion as to their respective responsibilities for damages suffered by James, as determined in a personal injury action that he hadf iled against Meridian. Although it is uncontested that M eridian had procured its own liability insurance policy fro m Companion, what is at issue in the present litigati on is
whether Zurich was a coinsurer.

Companion had earlier claimed (and now James claims ) that Meridian was insured under a policy issued by Zurich to Hess Oil Virgin Islands Corp. ("Hess Oil" or "HO VIC")1covering a construction project ("FCCU Project") at the Hess

Oil refinery in St. Croix, Virgin Islands. That Zur ich policy became effective on December 1, 1990 and continued for the duration of the project.2 As part of the FCCU P roject, Hess Oil contracted with Meridian to pave some road s. While working under Meridian's supervision on Augus t 31, 1993, James suffered an injury that he asserted res ulted in a below-the-knee amputation of his right leg. On Ju ne 24,

___________________________________________________ ______________

1. Amerada Hess Corporation ("Amerada Hess") is Hes s Oil's parent company. Because Hess Oil did not have its own insu rance department, Amerada Hess was involved in procuring the Zurich p olicy on Hess Oil's
behalf. To that end Amerada Hess utilized the assis tance of the Marsh & McClennan ("Marsh") brokerage firm.

2. Although the policy states that the estimated ti me for the project's completion was 44 months, Zurich Br. 43 states that "the parties to the contract have been consistently administering the c laims under the Zurich policy for nine years. . . ."

3

1994 James filed his personal injury action against
Meridian.3

Upon learning of James' lawsuit, "Meridian looked f or insurance policies that might cover its liability f or James' claim. Meridian identified Companion and Zurich as potential co-insurers. . . ." (James v. Zurich-Amer ican Ins. Co. of Ill., No. 95-117F, slip op. at 4 (D.V.I. Sep t. 9, 1998)).4
Defense of the case was tendered to Zurich as well as Companion, but Zurich denied coverage on the predic ate that Meridian was not insured under its policy. Com panion proceeded to defend the action, but it also tendere d defense of the claim to Zurich after initial discovery. Zur ich again denied coverage, and Companion then brought this declaratory judgment action.

James, Companion and Meridian later began settlemen t discussions. Zurich was afforded the opportunity to participate in those talks, but it declined. Those discussions led to an agreement under which Meridia n stipulated to a $1 million judgment and assigned wh atever rights it had against Zurich and Companion to James in exchange for James' promise not to execute the judg ment against Meridian. For its part, Companion agreed to pay James $125,000 as a discharge payment for its share of the stipulated judgment, and it too assigned its rights against Zurich to James. Because Companion's policy limit w as $1 million and Zurich's was $2 million, James stipulat ed that Zurich's maximum liability would be two-thirds of t he $1 million stipulated judgment.5 James was then substi tutedas the sole plaintiff in the federal action. Hence the nature

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3. Hess Oil and United Dominion Constructors, Inc. ("United Dominion") were originally named as codefendants, but they wer e later voluntarily
dismissed from the case.

4. Both James and Zurich seem to dispute the Distri ct Court's justquoted statement, instead identifying Companion as having discovered that Meridian might be covered under the Zurich pol icy.

5. Each of the Zurich and Companion policies contai ns a coinsurance provision stating that if another policy covers the same claim, the two policies are to be treated as coinsurance policies, with each insurer responsible for a pro-rata share of coverage based upon the respective policy limits.

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of the relief sought in the declaratory judgment ac tion
before the District Court was a declaration that Zu rich was a coinsurer, so that James could collect $666,666 f rom it under the settlement agreement.

On the litigants' cross-motions for summary judgmen t, the District Court determined (in its June 23, 1998 slip opinion, the "Summary Judgment Opinion"6) that the contract provision identifying the entities covered under the policy ("the Named Insured provision") was ambiguou s, so that the need for extrinsic evidence precluded a de cision as a matter of law. Here is the Named Insured provisio n (emphasis added):

Hess Oil Virgin Islands Corps. (HOVIC), Amer ada Hess Corporation and its directly and indirectly owned subsidiary companies and/or interests in ass ociated and/or affiliated companies and/or organizat ions and any other companies or entities over which A merada Hess Corporation is responsible to insure an d/or required to insure under contract or otherwi se in respect of their involvement in the HOVIC FCCU Proje ct, and Litwin Engineers and Contractors, Inc. and/o r Contractors, Subcontractors and Employees an d/or Consulting Engineers; and suppliers as requi red.

At the ensuing bench trial Zurich stressed that the "as required" language at the end of the provision refe rs back to the entities that Hess Oil is "responsible to in sure" or is "required to insure under contract." In contrast, J ames argued that the provision provided coverage for all contractors and subcontractors performing work on t he FCCU Project because the "as required" phrase relat es only to "suppliers."Both sides produced extrinsic evidence to support t heir

respective interpretations of the provision. Zurich and Hess Oil representatives testified7 that the intent of t he Named

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6. To distinguish between that opinion and the Dist rict Court's opinion rendered later at the trial, the latter slip opinio n (which has earlier

been quoted from in the text at n.4) will be referred to as "Trial Op."

7. All of the testimonial evidence for the bench tr ial was proffered through submissions of the witnesses' depositions a nd affidavits, not through live testimony.

5

Insured provision was to provide coverage only for" FCCU contractors," a term referring to contractors and subcontractors that Hess Oil had contractually prom ised to insure. As Hess Oil's Property and Casualty Claims Administrator John Talarico ("Talarico") explained, an "FCCU contractor is a term of art we use to describ e those whom HOVIC had agreed to provide insurance coverage as embodied by the Zurich Wrap Up policy."

Witnesses from Zurich, Hess Oil and Amerada Hess uniformly stated that the Named Insured provision w as intended to provide coverage solely for FCCU contra ctors. As Talarico explained in a letter to Zurich:

We purchased the Wrap Up liability insurance first, then the contract provisions were drafted to reflect the coverage terms and limits. The intent is to provide [general liability] and auto coverage for al l FCCU
contractors in all instances.

Among those bolstering that view were Andrew Wade ("Wade"), the Zurich underwriter who negotiated the policy, James Foley and Ed Weinman, the present and former Hess Oil controllers who dealt extensively with Hes s Oil's various contractors, and Kevin Beebe, Amerada Hess' Manager of Corporate Insurance.8

Zurich and Hess Oil employees also testified that t he policy was administered in accordance with the understanding that the provision covered only FCCU contractors. Talarico stated that in administering claims under the policy Zurich and Hess Oil acted consiste ntly with that understanding. Jackie Ward ("Ward"), a fo rmer litigation claims specialist with Zurich, assumed responsibility for handling claims under the policy in 1993 --well after the policy had become effective but be foreJames was injured. Ward said that she was told at t hat

time "[t]hat HOVIC or [Amerada] Hess would designat e those contractors they wanted to insure, and that I was

___________________________________________________ ______________

8. For example, Wade testified that the policy cove red only FCCU

contractors and that "FCCU contractors are those th at . . . HOVIC is obligated to insure because . . . HOVIC offered the m insurance as part of their contract . . . for the project."

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then to insure them under the policy with all of th e terms of it." She further answered "no" to the question w hether "the word `FCCU contractor' is a word of art used i n the policy,"9 but she then went on to confirm that "[i] t's a term that John Talarico and I used to simplify our deali ngs with each other." Finally, it is undisputed that when Ja mes filed
suit Zurich did undertake the defense of another co mpany --a codefendant in James' action--that was an"FCCU contractor" that Zurich was contractually obligated to
insure.

On the other side of the dispute as to original int ent, some written extrinsic evidence submitted by James appeared to indicate that the Zurich policy as writ ten provided coverage for all contractors and subcontra ctors who worked on the FCCU project. First, during negot iations for the policy Amerada Hess sent Zurich's proposal to Marsh and attached Exhibit II(a) as a summarization of the policy's terms. Exhibit II(a) listed substantially the same language that ultimately appeared in the Named Insu red provision and went on with this skeletal descriptio n of that provision:

Policy names as requested Amerada Hess, HOVI C, Litwin and any other contractor or subcontra ctor.

Another abbreviated summary of the Zurich policy pr epared by Wade stated that coverage extended to "Hess Oil Virgin Islands Corporation (HOVIC) and all Contractors and SubContractors for FCCU Project." Finally, though this added factor is at best a slim reed, the policy premium w as calculated on the total cost of the FCCU Project (w hich thus included the amounts payable on all of the subcontr acts, including Meridian's).

Because it found that extrinsic evidence in support of
Meridian's contention more credible and relevant to the original contractual intent, the District Court hel d"that the intent of the parties in negotiating the contract w as to provide coverage for all contractors and subcontrac tors who

___________________________________________________ ______________9. That question is inherently misleading. When the term "FCCU

contractor" as such does not appear in the policy a t all, what sensible meaning can be given to the question whether it is a"word of art" there?

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worked on the FCCU Project" (Trial Op. 13). Alterna tively, despite its earlier summary judgment ruling, the co urt
reached the same conclusion as a matter of law beca use it determined that the ambiguous Named Insured provisi on should automatically be construed against the insur er (id. 12-13).

Hence, after having determined that Zurich was boun d by the James-Meridian-Companion settlement agreemen t,10
the District Court held that Zurich was a coinsurer of Meridian and ordered it to pay James $666,666 plus interest. This appeal then ensued. James also cross appeals, arguing that the District Court erred infi nding that the policy language was ambiguous.

___________________________________________________ ______________

10. Although we have on several occasions upheld (a s a matter of applicable state law) the validity of two-tiered se ttlements where they

are

reasonable and entered into in good faith (see, e.g ., Trustees of the
Univ.

of Pa. v. Lexington Ins. Co., 815 F.2d 890 (3d Cir. 1987) and Greater N.Y. Mut. Ins. Co. v. North River Ins. Co., 85 F.3d 1088 (3d Cir. 1996)), from the very outset we have been "not unmindful of the dangers presented by two-tiered settlements" (Lexington, 815 F.2d at 902), particularly

"that

two-tiered settlements are fraught with the danger of self-dealing and should be scrutinized with extra care" (id .). In t his instance James' covenant not to execute the $1 million consent judg ment against Meridian left the latter totally indifferent to whe ther the price tag attached to that judgment was really $1 million or (say) twice or three times that amount. During the pendency of this decl aratory judgment action, Companion wrote Zurich that James' action c ould be settled in the range of $300,000, a demand that was apparently then lowered to $250,000. Even on the predicate that Companion (whi ch indisputably was obligated to cover Meridian, and hence the Jame s claim, under its own $1 million policy) would come up with just $125 ,000 in cash as its contribution, that $250,000 figure would have cappe d out Zurich's liability at $125,000 if it had caved in to the dem and that it join in a global settlement. Instead the $1 million figure th at was nominally attached to the consent judgment ("nominally" becau se it meant nothing to either Meridian or Companion) placed Zurich at r isk for $666,666 as the price for having taken this case to trial and n ow to appeal. Thisscenario appears to provide a classic instance of t he concerns that we

voiced in Lexington. But our disposition of this ap peal on other grounds makes it unnecessary for us to issue a definitive r uling, rather than merely this caveat, on that score.

8

Jurisdiction and Standard of Review

Jurisdiction in the District Court was invoked on diversity-of-citizenship grounds under 28 U.S.C.S13 32. Appellate jurisdiction over the District Court'sfin al judgment exists under 28 U.S.C. S1291.

We exercise plenary review as to the correct constr uction and legal operation of an insurance policy (see New Castle County v. Hartford Accident & Indem. Co., 970 F.2d 1267, 1270 (3d Cir. 1994); Pittston Co. Ultramar Am. Ltd. v. Allianz Ins. Co., 124 F.3d 508, 515 (3d Cir. 1997)) . Finally, the District Court found (Trial Op. 10-11), and nei ther party disputes, that Virgin Islands contract law ap plies to this case. As such, we both (1) apply Virgin Island s contract law and (2) exercise de novo review over the Distri ct Court's interpretation of that law (see Chemical Leaman Tan k Lines, Inc. v. Aetna Cas. & Sur. Co., 89 F.3d 976, 983 (3d Cir. 1996)). In doing so we credit the District Court's factual findings.

Whom Does Zurich's Policy Cover?

As stated earlier, Zurich insists that the Named In sured provision covers only "FCCU Contractors," a term th at does not encompass Meridian. Even more importantly, that reading is supported by the uncontradicted testimon y of persons on both sides of the contract itself, as we ll as the consistent post-contracting course of dealings betw een Zurich and Hess Oil. But relying on the ambiguities of language and some extrinsic evidence, James asserts that Meridian is included as a named insured under the p olicy. Thus the situation is that both parties to the cont ract say that the provision means "X," while a stranger to t he contract--Meridian--says it means "Y."

We agree with the District Court that the Named Ins ured provision is ambiguous.11 But any extended (or even brief)

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11. As we have stated, James disputes that in its c ross-appeal. But the
issue turns out to be irrelevant to the outcome. As the ensuing discussion reveals, even if the provision were not ambiguous the parties to the contract were free to modify its terms, eith er by express amendment or by their conduct.9

colloquy on how the extrinsic evidence should be we ighed is entirely unnecessary, because the consistent pra ctical construction given to that provision by the parties to the
contract controls its terms. As the second of its a lternative rulings, the District Court held that Meridian was covered under the policy because extrinsic evidence indicat ed "that the intent of the parties in negotiating the contra ct was to provide coverage for all contractors and subcontrac tors who worked on the FCCU project" (Trial Op. 13, emphasis added). So the District Court cast its searchlight of analysis solely on the presumed intention of the parties at the time of contract formation, not at all on how the contra cting parties then proceeded to construe the policy in op eration.12

But as Capitol Bus Co. v. Blue Bird Coach Lines, In c., 478 F.2d 556, 560 (3d Cir. 1973) exemplifies, a basic r ule of contract construction is that "[a] contract must be interpreted in light of the meaning which the parti es have accorded to it as evidenced by their conduct in its performance."13 All of the ALI Restatements of the Law (thus including the Restatement (Second) of Contracts ("Restatement")) have been adopted as definitive so urces of rules of decision by the Virgin Islands Legislature . 14 And Restatement S201(1) echoes the teachings of Capitol Bus:

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12. For example, the District Court did not credit the testimony of Hess
Oil's current and former controllers because "none of these individuals had been involved in the negotiation of the policy, and most if not all of them had not even seen the policy" (Trial Op. 8). S imilarly, Talarico's testimony was discredited in part because "Talarico did not even work for Hess at the time the policy was negotiated" (id .) In stark contrast,

the extrinsic evidence produced by James was given grea ter weight because it was generated during the policy's negotiation (i d. 6-8).

13. See also such cases as Insurance Corp. of Am. v . Dillon, Hardamon & Cohen, 725 F.Supp. 1461, 1464 (N.D. Ind. 1988), ado pting the view that "where, as here, the insurer and the insureds agree on the interpretation of a particular provision . . ., their agreement en ds the inquiry," and Pioneer Life Ins. Co. v. Alliance Ins. Co., 374 Ill . 576, 590, 30 N.E.2d 66, 73 (1940) ("Where the terms of an agreement are in any respect ambiguous and the parties have by their own acts pl aced a reasonable construction upon them, their interpretation will b e adopted by the court").

14. V.I. Code Ann. tit. 1, S4 (1999) states:

10Where the parties have attached the same mea ning to

a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.

That same message is conveyed throughout the Restatement, as in Restatement S202(5)(emphasis add ed):

Wherever reasonable, the manifestations of i ntention of the parties to a promise or agreement are in terpreted as consistent with each other and with any r elevant course of performance, course of dealing, or usage or trade.

Restatement S202, comm. g adds:

The parties to an agreement know best what t hey meant, and their action under it is often th e strongest evidence of their meaning. But such "practic al construction" is not conclusive of meaning. Conduct must be weighed in the light of the terms of the agreement and their possible meanings. Where it is unreasonable to interpret the contract in ac cordance with the course of performance, the conduct of the parties may be evidence of an agreed modific ation or of a waiver by one party.

Zurich's and Hess Oil's post-contracting conduct, a s manifested by their consistent administration of th e Zurich policy, was eminently reasonable in practical terms
, whether adopted as a sensible way to resolve the am biguity of the Named Insured provision's opaque language (f ramed as it was in a way that would fail English Grammar and Syntax 101), or even if adopted as a sensible cours e of dealing instead of what might have been perceived a s an awkward literal meaning of the provision. Either wa y, the contracting parties' uniform course of dealing made it clear that they viewed the policy as covering only contra ctors and

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The rules of the common law, as expressed in the restatements of the law approved by the American Law Institu te, and to the extent not so expressed, as generally understood an d applied in the United States, shall be the rules of decision in th e courts of the Virgin Islands in cases to which they apply, in the absence of local laws

to the contrary.

11

subcontractors that Hess Oil had a contractual obli gation
to insure.Indeed, as the District Court itself noted in its r uling on

the parties' cross-motions for summary judgment (Summary Judgment Op. 8):

The affidavits, depositions and other docume ntation submitted by Zurich show that the individual s that have administered the insurance policy [at Z urich, Amerada Hess and Hess Oil] all agree that Me ridian would not be covered according to the way th at the Zurich policy has been administered.

That acknowledgment should really have spelled the end of the matter. After all, the parties to a contract ar e free to define and clarify--or even to change--the contract 's terms, and Zurich and Hess Oil did precisely that by pursu ing a
course of conduct consistent with their mutual understanding of the Named Insured provision.15

Most importantly for the present appeal, suppose th at the District Court were right in its parsing of the ori ginal paper record as indicating that Zurich and Hess Oil had o riginally intended to provide coverage for all subcontractors , thus including Meridian. Even so, their later practical application of the Named Insured provision in a tot ally different fashion must prevail, because Meridian ne ver had any vested rights in the terms of the policy as ori ginally written. It is really irrelevant what the extrinsic evidence of the original contract negotiations may have shown, because Zurich and Hess Oil remained free to modify the con tract's terms. Restatement S311(2) explains that in the abs ence of

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15. Citing an opinion from the same District Court in Coakley Bay Condominium Ass'n v. Continental Ins. Co., 770 F.Su pp. 1046, 1050 (D.V.I. 1991), the district judge said "[t]he inter pretation of a contract
is dependant upon the meaning of the language used by the parties to the contract, and the Court must assume that the partie s embodied their whole intentions in the contract" (Trial Op. 11). T hat statement ignores the dictates of the Restatement, approved and adopt ed as it has been by the Virgin Islands legislature. As such, the Distri ct Court's singleminded

focus on the perceived intentions of the parties as assertedly embodied in the language of the contract closed off all inqu iry into the controlling

relevance of the policy's post-contractual administ ration.

12

an explicit provision to the contrary, "the promiso r and promisee retain power to discharge or modify the du ty [toan intended beneficiary] by subsequent agreement." Here

there was certainly no explicit provision in the Zu rich policy to negate that retained power.

At most Meridian (and hence James as its assignee) could lay claim to benefits under the policy as an intended third-party beneficiary. And on that score, Restate ment S311(3) lists three vesting events that signal when a contract may no longer be modified without the cons ent of an intended beneficiary:

Such a power [the one referred to in the pre ceding paragraph's quotation from Restatement S311( 2)] terminates when the beneficiary, before he r eceives notification of the discharge or modificatio n, materially changes his position in justifiable reliance on the promise or brings suit on it or manifests as sent to it at the request of the promisor or promisee.

Without question, no potential third-party rights t hat Meridian may assertedly have claimed under the cont ract ever vested under any of those alternatives.

First, the record establishes without contradiction that Meridian never materially changed its position in r eliance on the Zurich policy. It will be remembered that Me ridian purchased its own liability insurance from Companio n-- indeed, it was not even aware of any possible cover age under the Zurich policy until after James had alrea dy filed suit against Meridian.16

Second, Meridian was confronted with Zurich's total ly different (and adverse) view of the policy's covera ge before James (standing in Meridian's shoes via assignment) filed the present declaratory judgment action. James' ini tial action against Meridian cannot of course be conside red a suit on the contract under Restatement S311(3): It was a

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16. At best, as the District Court found (Trial Op. 4), it was only after
James' suit was filed that "Meridian looked for ins urance policies that might cover its liability." At worst, as discussed in n. 4, Meridian never even knew about any possible coverage under the Zur ich policy until Companion had taken over the James personal injury case.

13

personal injury action, not a suit on the contract, and neither Companion nor Zurich was named as a party i n that case. Finally, it is also beyond dispute that neither Zurich nor Hess Oil ever requested Meridian's assen t to any promise that it would be covered under the policy ( a promise that was never conveyed to Meridian at all)

.In sum, it is clear that the earliest time at which

Meridian could even arguably have claimed any type of "interest" was the date on which James was injured and Meridian's liability for that injury arose. Before that date Zurich and Hess Oil were free to modify the policy' s terms if and to the extent that they desired. And the
uncontroverted record evidence is that even if ther e had been any intent, as read into the original policy t erms, to cover subcontractors such as Meridian, that presume d intent was supplanted by the mutual understanding-- arrived at well before James' injury--that the poli cy covered only "FCCU contractors." And the identical result f ollows if the contracting parties' course of conduct were to be viewed as a clarification of ambiguous language. As Federa l Ins. Co. v. Americas Ins. Co., 691 N.Y.S.2d 508, 513 (N. Y. App. Div. 1999) has put it:

Moreover, where, as here, the parties themse lves agreed to clarify the policy

. . . their agreement will be enforced even if the rights of a third party are affected, unless the th ird party can show that it changed its position in relianc e upon the agreement as originally written.

Any way you slice it, then, the undisputed conduct of the parties controls the terms of the contract between them, thus excluding coverage for Meridian.

Zurich and Hess Oil's in-practice application of th e policy likewise torpedoes the District Court's alternative ruling. Having found that the policy was ambiguous, the Dis trict
Court said that extrinsic evidence need not be cons ulted because Virgin Islands law mandates that "the interpretation more favorable to coverage must prev ail" (Trial Op. 12). On that premise, the District Court summarily ruled that the policy should be construed to include coverage for Meridian, and hence in James' favor.

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But such generalized doctrines of contract interpre tation must not be applied in a vacuum. Contra proferentem construction of an ambiguous insurance policy again st an insurer may well come into play where the contract dispute is between the insurer and its insured, each conten ding for a different reading of the insured's coverage under a policy. But here we are called on to decide a very differen t question: whether a third-party entity is entitled to policy coverage where the contracting parties have agreed on a negative answer but that third party objects.Such cases in our Circuit as Rich Maid Kitchens, In c. v.

Pennsylvania Lumbermens Mut. Ins. Co., 641 F.Supp. 297, 307-08 (E.D. Pa. 1986), aff 'd without published op . 833 F.2d 307 (3d Cir. 1987), and Hodgins v. American Mu t. Liability Ins. Co., 261 F.Supp. 129, 130-31 (E.D.Pa . 1966) have properly made that very distinction, rejecting the application of contra proferentem principles in suc h a
context. Here too there is no "doubt as to what the parties themselves intended" (the language in Hodgins , id. at 130).17 Hence the District Court was clearly mistaken in ap plying the doctrine to Zurich's disadvantage in the matrix of this

case.

It is thus unnecessary to decide the mooted questio n whether Virgin Islands law will construe ambiguous policy language against the insurer when the parties to th e policy have equal bargaining power. But it is worth observ ing that the very existence of that exception in many jurisd ictions emphasizes that the doctrine itself is to be employ ed only in disputes between parties to an insurance policy, fo r it is fundamental that the purpose of judicial interpreta tion of a contract is to ascertain the intent of the parties. Where both parties have equal bargaining power, any judic ial
concerns about "take it or leave it" contracts of a dhesion are lessened, and mutual agreement is more readily assumed. Here the parties to the contract have agre ed on

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17. Indeed, James Br. 30 concedes that a policy pro vision is strictly construed against the insurer only when it is capab le of two reasonable interpretations--again a proposition based on the d ifferences in interpretation between an insurer and its insured. Here both parties to the policy agree on its interpretation, so the prin ciple is inapplicable.

15

its terms, and it would subvert freedom of contract principles to benefit a third party by employing a legal doctrine--useful merely as an aid to interpretation --that yields a contrary result.

Conclusion

We apply the Named Insured provision, just as the contracting parties have in their own practical con struction of that provision, in Zurich's favor regarding the exclusion of coverage for Meridian. Even if the policy as ori ginally drafted were to be construed in Meridian's (and hen ce James') favor, Meridian's (and hence James') rights as a third-party beneficiary would not have vested befor e Zurich
and Hess Oil had established a consistent course of conduct in administering the policy that excluded c overage for any subcontractor such as Meridian. Because it isundisputed that Meridian was not a "FCCU contractor ," we

hold that the Zurich policy did not provide coverag e for
Meridian as the time of the incident that resulted in James' injuries.18 We AFFIRM as to the District Court's determination that the policy provision at issue is ambiguous (though, as stated earlier, that makes no difference in the result), and we REVERSE and order the entry of final judgment in favor of Zurich and agai nst

James.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

___________________________________________________ ______________

18. Counsel for James submitted a post-argument let ter, obviously stimulated by questions from our panel during oral argument, raising the objection that Zurich had not advanced the prec ise legal position
that we have articulated here. But both before the District Court and on appeal Zurich has urged that the case should be con trolled by the undisputed evidence demonstrating the uniform post- contract understanding of the parties to the policy. We see no principled jurisprudential reason for ignoring the first-year law school contracts teaching that confirms the correctness of that posi tion.

16

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